Monster Energy Company, FKA Hansen Beverage Company, Petitioner-Appellee,
City Beverages, LLC, DBA Olympic Eagle Distributing, Respondent-Appellant.
and Submitted July 12, 2019 Pasadena, California
from the United States District Court for the Central
District of California R. Gary Klausner, District Judge,
Presiding D.C. No. 5:17-cv-00295-RGK-KK
Michael K. Vaska (argued), Rylan L.S. Weythman, and Devra R.
Cohen, Foster Pepper PLLC, Seattle, Washington; Jonathan
Solish and David A. Harford, Bryan Cave LLP, Irvine,
California; for Respondent-Appellant.
M. Schierling (argued), Norman L. Smith, and Daniel E.
Gardenswartz, Solomon Ward Seidenwurm & Smith LLP, San
Diego, California, for Petitioner-Appellee.
Michael D. Madigan and Brandt F. Erwin, Madigan Dahl &
Harlan P.A., Minneapolis, Minnesota, for Amicus Curiae
National Beer Wholesalers Association.
Before: MILAN D. SMITH, JR. and MICHELLE T. FRIEDLAND,
Circuit Judges, and MICHAEL H. SIMON, [*] District Judge.
panel reversed the district court, vacated a final
arbitration award between Monster Energy Co. and City
Beverages LLC, doing business as Olympic Eagle Distributing,
and vacated the district court's award of
post-arbitration fees to Monster Energy Co. for its petition
to confirm the award.
Monster exercised its contractual right to terminate a
distribution agreement, the parties proceeded to arbitration
to determine whether Olympic Eagle was entitled to protection
under Washington law, and thus whether Monster had improperly
terminated the agreement without good cause. The parties
chose an arbitrator from a list of several neutrals provided
by JAMS, the arbitration organization specified in the
agreement. At the outset of arbitration, the arbitrator
provided a series of disclosure statements and in the final
arbitration award, determined that Olympic Eagle did not
qualify for protection under Washington law. Olympic Eagle
sought to vacate the award based on later-discovered
information that the arbitrator was a co-owner of JAMS-a fact
that he did not disclose prior to arbitration.
panel first rejected the claim that Olympic Eagle waived its
evident partiality claim because it failed to timely object
when it first learned of potential bias on the part of the
arbitrator. The panel held that because Olympic Eagle did not
have constructive notice of the arbitrator's potential
non-neutrality, it did not waive its evident partiality
panel held that before an arbitrator is officially engaged to
perform an arbitration, to ensure that the parties'
acceptance of the arbitrator is informed, arbitrators must
disclose their ownership interests, if any, in the
arbitration organizations with whom they are affiliated in
connection with the proposed arbitration, and those
organizations' nontrivial business dealings with the
parties to the arbitration. In this case, the
arbitrator's failure to disclose his ownership interest
in JAMS, coupled with the fact that JAMS has administered 97
arbitrations for Monster over the past five years, created a
reasonable impression of bias and supported vacatur of the
arbitration award. Because the panel vacated the arbitration
award, the panel also vacated the district court's award
of post-arbitration fees to Monster.
Judge Friedland disagreed that, in an evaluation of whether
the arbitrator might favor Monster, the additional
information the majority believed should have been disclosed
would have made any material difference. She would therefore
reject Olympic Eagle's effort to vacate the arbitration
award in Monster's favor.
Beverages, LLC, doing business as Olympic Eagle Distributing
(Olympic Eagle), and Monster Energy Co. (Monster) signed an
agreement providing exclusive distribution rights for
Monster's products to Olympic Eagle for a fixed term in a
specified territory. After Monster exercised its contractual
right to terminate the agreement, the parties proceeded to
arbitration to determine whether Olympic Eagle was entitled
to protection under Washington law, and thus whether Monster
had improperly terminated the agreement without good cause.
From a list of several neutrals provided by JAMS, the
arbitration organization specified in the agreement, the
parties chose the Honorable John W. Kennedy, Jr. (Ret.) (the
Arbitrator). At the outset of arbitration, the Arbitrator
provided a series of disclosure statements. In the final
arbitration award (the Award), the Arbitrator determined that
Olympic Eagle did not qualify for protection under Washington
parties filed cross-petitions in the district court, with
Monster seeking to confirm the Award and Olympic Eagle moving
to vacate it. The district court ultimately confirmed the
conclude, given the Arbitrator's failure to disclose his
ownership interest in JAMS, coupled with the fact that JAMS
has administered 97 arbitrations for Monster over the past
five years, that vacatur of the Award is necessary on the
ground of evident partiality. We therefore reverse the
district court and vacate the Award. We also vacate the
district court's award of post-arbitration fees to
Monster for its petition to confirm the Award.
AND PROCEDURAL BACKGROUND
2006, Olympic Eagle, an Anheuser-Busch (AB) distributor,
agreed to promote and sell Monster energy drinks for twenty
years in an exclusive territory. The contract permitted
Monster to terminate the agreement without cause upon payment
of a severance fee. Eight years later, Monster exercised its
termination right and offered to pay Olympic Eagle the
contractual severance of $2.5 million.
response, Olympic Eagle invoked Washington's Franchise
Investment Protection Act (FIPA), which prohibits termination
of a franchise contract absent good cause. See Wash.
Rev. Code § 19.100.180(2)(j). Monster served an
arbitration demand on Olympic Eagle and filed an action in
the district court seeking to compel arbitration. The
district court ruled in favor of Monster and compelled
arbitration before JAMS Orange County, as specified by
Monster in its form agreement with the AB distributors.
provided a list of seven neutrals to conduct the arbitration,
and the parties chose the Arbitrator. The Arbitrator's
multi-page disclosure statement, provided to the parties at
the commencement of arbitration, contained the following
I practice in association with JAMS. Each JAMS neutral,
including me, has an economic interest in the overall
financial success of JAMS. In addition, because of the nature
and size of JAMS, the parties should assume that one or more
of the other neutrals who practice with JAMS has participated
in an arbitration, mediation or other dispute resolution
proceeding with the parties, counsel or insurers in this case
and may do so in the future.
two weeks of hearings, the Arbitrator issued an interim
award, finding that Olympic Eagle was not entitled to
protection under FIPA. Two months later, the Arbitrator
awarded Monster attorneys' fees (together with the
interim award, the Award).
Monster filed a petition in the district court to confirm the
Award, and Olympic Eagle cross-petitioned for its vacatur.
Olympic Eagle sought to vacate the Award based on
later-discovered information that the Arbitrator was a
co-owner of JAMS-a fact that he did not disclose prior to
arbitration. Olympic Eagle also requested information from
JAMS regarding the Arbitrator's financial interest in
JAMS, and Monster's relationship with JAMS. When JAMS
refused to divulge this information, Olympic Eagle served
JAMS with a subpoena. In the face of further resistance,
Olympic Eagle later moved to compel JAMS's response to
the district court confirmed the Award, denying Olympic
Eagle's cross-petition and finding its motion to compel
moot. The district court then awarded Monster attorneys'
fees from both the arbitration and the post-arbitration